by Jason Collazo
If you are one of many Americans who own a small business, a credit card at first can come off as a good idea and a great investment. They have overall higher limits than their personal counterparts because as small business owners, they are providing for a business and thus tend to spend more.
Not only that, but these cards tend to encompass certain incentives meant strictly for the small business owner. These can include functions such as employee cards and regular spending statements, as well. And more akin to personal credit cards, there are old standbys like rewards, balance transfers, introductory rates, etc.
They can also be easy to obtain. Take the year 2009. According to information gathered by the Federal Reserve and presented in the Tulsa World, about 75% of small businesses who filled out credit card applications saw their attempts accepted.
Compare this to the difficulty of a small business to get either a line of credit or a traditional bank loan.
But if you own a small business, you may not necessarily want to lean on a credit card.
It helps to have an excellent credit history for your business as a foundation, just like it would your personal life. But how does a business even get a sense of their whole credit history? It depends on a myriad of factors, such as the personal credit histories of the employees, how long the business has existed (it helps to have been around for the minimum of two years), cash flow, business credit histories and lastly other lines of credit.
With all this taken into consideration, you may want to do an in-depth analysis of where your business stands. If your business practices financial responsibility, i.e. making timely payments and keeping positive cash flow in your system, then applying for a card should be no problem.
Although no business honestly wants to think this way, there’s always that nagging question: what if your business should fail? Unfortunately, it happens, time and time again. And if it should happen to you, what becomes of your card? The applicant then will become personally accountable for all card charges (likely, you).
If the businesses financing becomes problematic, this will reflect upon your account. To avoid this kind of dilemma, you need to have a stable credit history. Check into the terms and conditions of your credit account to see if will be safe, in the case of such an event.
Small businesses cards, on the other hand, have the danger of unsecured loans attached to them. Because this is what they essentially are: unsecured loans. Defaulting or not paying will lead you down the path to write-offs.
Also, the CARD Act of 2009 covers personal cards but not business credit cards. So lots of terms that were outlawed against personal cards, have not been outlawed against business credit cards.
If you are a small business owner, take this all into your careful thought before applying for a credit card for your business.
Yes, you may get what, but then: now what?
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